😃 The Good: Savers will earn more interest
😔 The Bad: Mortgage holders will pay more
😥 The Ugly: You're meant to feel the pain
The Reserve Bank of Australia (RBA) hiked interest rates by another 0.25 per cent, bringing the official cash rate to 2.60 per cent.
This was the sixth time the central bank has hiked the cash rate in as many months, since it was at a record low 0.1 per cent in April.
Savers get more bang for their buck
RFI Global data in September shows that single Aussies have about $40,000 in savings on average. The ones who have a home loan have a bit less at $37,553.
If you have $40,000 in savings you can now earn up to $921 in 12 months in one of the highest-interest accounts around.
Even if you have $5,000 stashed away you could earn $115 per year more thanks to this rate hike.
Canstar editor-at-large Effie Zahos said increased savings rates are a major benefit for Aussies.
“The silver lining of rate hikes is that savers can now finally generate some income without having to put their capital in a volatile stock market,” Zahos said.
Mortgage holders will cop even more pain as repayments keep on getting higher
This is the sixth rate hike in a row for homeowners - put simply this means if you have a home loan you are going to pay thousands of dollars in interest more a year. (Quite the shock after years of interest rates falling and homeowners getting a cut in the amount they have to pay.)
So, just how much does this hurt people with home loans? According to Finder’s Consumer Sentiment Tracker, 1 in 4 (26 per cent) of Aussie homeowners struggled to pay their mortgage in September and today’s announcement means that struggle is going to get even harder.
What does this mean in dollar terms? Head of consumer research at Finder Graham Cooke said Aussies with a $500,000 mortgage will be paying almost $9,000 more a year in interest compared to 6 months ago.
“Australians with a $500,000 mortgage will be forking out $735 more per month compared to what they were paying in April,” Cooke said.
Every single Aussie is feeling the pain from inflation
Whether you’re a mortgage holder or not, the rising cost of living has been putting pressure on every household.
And, the harsh truth is that the RBA is hiking rates because it wants Aussies to feel the pain and stop spending so much.
RBA governor Philip Lowe said that the war in Ukraine and COVID causing supply chain problems has put pressure on prices.
Lowe said that inflation in Australia is way too high,
How does this work? When there is high demand for something, but it's not easy to get your hands on, the price goes up.
How do you bring the price back down? One tactic is to stop the demand in the first place, which in a nutshell means getting all of us to stop buying things.
Lifting interest rates has been called a very blunt instrument to stop us spending so much, but it’s a real balancing act between bringing down spending without wrecking the economy.
“The path to achieving this balance is a narrow one and it is clouded in uncertainty,” Lowe said.
“Today’s further increase in interest rates will help achieve a more sustainable balance of demand and supply in the Australian economy. This is necessary to bring inflation back down.”
In other words - the ugly news is we’re all going to have to tighten our belts, lie back and think of the Aussie economy (not much consolation we admit).